Well, we’re socializing in a big way these days.
Have a nice time.
Make no mistake. We’ve entered full-blown bailout mode in the credit crunch that traces its origins to the subprime mortgage market meltdown. We will be picking up the tab for the excesses of debt-drunk borrowers and their greedy corporate enablers for years to come.
Both the Federal Reserve and the federal government appear to be making things up as they go along, announcing on an almost daily basis exotic new measures aimed at thawing frozen credit markets.
The bailout goes way beyond the usual strategy of cutting short-term interest rates, as the Fed has done six times since September in hopes of loosening credit and goosing a slowing economy.
The Fed also has taken unprecedented steps to lend directly to investment banks, rather than just to commercial banks it regulates. And the Fed has expanded the types of collateral it will accept to include some mortgage-backed securities that lie at the heart of our problems.
The federal government, meanwhile, has approved a tax rebate-heavy fiscal stimulus package. But it also has loosened capital requirements and raised caps on loans that mortgage giants Fannie Mae and Freddie Mac handle in hopes of propping up the housing market.
While it’s modestly reassuring to know the Fed and the feds are on the case, the frenetic pace and sheer number of actions also suggest just how closely the financial system skirted a real panic in recent days.
When the history of this credit crisis — and the recession it probably spawned — ultimately is written, the collapse of the investment bank Bear Stearns will be a threshold event.
Bear was a proud, rambunctious firm with a long history of zigging while others on Wall Street were zagging. Bear survived the stock market crash of 1929 without laying anyone off.
It resolutely refused to assist in the Fed-orchestrated bailout of Long-Term Capital Management when the hedge fund collapsed amid a credit market seizure in the late 1990s. And in recent years, Bear dealt enthusiastically in mortgage-backed securities as it grew to become the nation’s fifth-largest investment bank.
So when its Wall Street brethren suddenly refused to do business with Bear as rumors of a liquidity crunch swirled, the Fed faced a vexing choice.
By itself, Bear wasn’t too big to fail. Indeed, the dictates of chest-thumping free-market types argue strongly that Bear deserved to fail as penance for its strategic missteps.
But the Fed also saw a Bear bankruptcy as the first in a potentially long line of dominoes that could damage the entire financial system it is charged to protect. So it chose to assist Bear’s purchase by rival J.P. Morgan Chase, initially for the paltry sum of about $2 a share which was renegotiated to $10 a share when large shareholders opposed the deal.
Owners of Bear shares, which had traded at about $170 a little more than a year ago, understandably are howling in pain.
So what? I couldn’t care less about the thinning wallet of Bear Chairman Jimmy Cayne, who famously idled away the early days of the credit crisis playing golf and bridge with his buddies. I’ll shed no tears for billionaire investor Joe Lewis, who assembled a big stake in Bear late in the game, only to see it turn to dust.
Economically speaking, at least, some of the key players must suffer for the credit market excesses of recent years. Bear investors have become, symbolically, a public sacrifice.
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